When it comes to the stock market, there are bear markets, where more stocks are being sold than are being bought. When more stocks are being bought than being sold, thats called a bull market.
And then we have right-wing water carrier Rush Limbaugh advising his listeners to stick with stock investments despite indications of uncertainty. Call it a bull...excrement market.
On Friday's show, Limbaugh sought to assuage his listeners' fears about a 387 point drop in Thursday's trading. Limbaugh offered up the example of investor Warren Buffet to bolster his case. According to a story in the July 29 issue of US News and World Report, an investor who let Buffet handle 1,000 hard-earned Eisenhower era dollars would today be worth an astonishing $27.6 million.
But let's take a closer look at those numbers. In 1956, $1,000 represented about 20% of the average family's income. One of the major expenses a family would have had was purchasing a home. The typical home of the era sold for the magnificent sum of $17,800.
Transportation would also have posed a major expense for a typical American family. Such a family might well have traveled to the local Chevrolet dealer in the fall, when a salesman would have placed the keys to a brand spanking new Belair ragtop for $2,511.
Now, neither the house nor the car would have had as much of a return as the $1,000 left in Buffet's care. The house would have increased about 26% per year in value, leaving the owners with a dwelling priced at $240,000. And if those same owners had managed to hold on to an unblemished 1957 Chevy for all those years? A similar vehicle sold for $270,000 at the Barrett-Jackson auction in 2006. That represents a rate of return of over 200% a year.
Some may argue that the returns on the house and car seem excessively large. Indeed, both of those investments, like any investment are prone to fluctuations in their respective markets. At one point, the Chevy would have been just another worn-out car taking up space on the back of some dealer's lot. The house, of course, might have problems related to a temporary housing glut or unfavorable development of the surrounding neighborhood.
Nonetheless, either one would make a terrific hedge against inflation. And let's be honest: nobody ever drove to the Dairy Queen in their shares of General Electric.
My point is simple. During the years that Buffet made the bulk of his fortune, there was enough prosperity for people to make money investing in just about anything. Heck, salaries rose an average of 5% a year during this time. Let me repeat that: salaries were rising an average of 5% a year when savings accounts might have yielded 3% per year.
And let's not forget the period of time being talked about here. An individual well-established enough to scrap together $1,000 in 1956 would be a likely candidate for a nursing home today. It might be a very nice nursing home, but it would still be a nursing home.
The bulk of Buffet's fortune (and let's not forget that Warren Buffet was wealthy before he began speculating on Wall Street) was made during a time when there was prosperity for all. The past several years have offered up a different story. We have lost many jobs to overseas workers. Unions have had to struggle to maintain their bargaining power with corporations and workers, and the countries lowest-paid workers have seen their wages stuck at 1997 levels.
And it is in this economy that Limbaugh would have his listeners to hold on to their portfolios? That's just a load of that stuff bulls leave behind while their grazing on the south forty.